Cap credit card debt charges, says Labour Party
BRIGHTON (Reuters) – The Labour Party will say on Monday it wants to impose a cap on interest payments on consumer credit card debt, warning that levels of personal indebtedness were a threat to the economy.
The leftist Labour Party will announce the policy in full on Monday, when finance spokesman John McDonnell addresses the annual party conference in the southern seaside town of Brighton, setting out his plan for the economy if Labour wrestles power from Prime Minister Theresa May’s Conservatives.
McDonnell will say that slow wage growth has fuelled a growing level of borrowing, and he will call on the government to set a maximum charge for credit card customers who are trapped in “persistent debt”.
“It means that no-one will ever pay more in interest than their original loan,” McDonnell will say, according to advance extracts of his speech.
“If the Tories (Conservatives) refuse to act, I can announce today that the next Labour government will amend the law.”
Labour lost a general election in June 2017, and the next one is not scheduled until 2022, but the party is banking on Conservative Prime Minister Theresa May’s government falling sooner.
May lost her overall majority in the June vote while Labour’s left-wing policy agenda, including pledges to reduce student debt and cap energy costs, helped it gained seats.
“The last seven years of Tory economic failure has created the perfect storm, as wages have fallen behind, more and more families are being pushed deeper into debt,” McDonnell will say.
“Persistent debt” is defined by the Financial Conduct Authority regulator as an individual having paid more in interest and charges than they have paid back on the principal over an 18 month period. It estimates over 3 million Britons fall into this category.
Credit card issuers typically do not step in because such customers are profitable, with costs to customers on average 2.5 pounds for every pound repaid.
The FCA in April proposed a set of less-radical measures to encourage companies to reduce the number of customers in persistent debt. The Bank of England has also expressed concern about the broader risk of an increasing amount of consumer credit being made available by banks.
“Labour take it too far and would damage our economy, meaning fewer jobs, higher taxes and more debt,” said Liz Truss, a Conservative finance department minister.
Labour said it estimated 433,000 people who took out credit cards since 2010 have already paid total interest and other charges exceeding the full amount they borrowed.
McDonnell will cite previous action to cap the cost of short term, high interest “payday loans”, as precedent for new regulation.
In January 2015, the Conservative-led coalition government imposed a daily cap on the interest rate that lenders could charge on such loans.